Markets change all the time and no rules work all the time. Why have "exact rules" at all? Isn't it all about buying pullbacks in uptrend or shorting rallies in downtrend (for trend following strategies for example)? Or "buying pullback" is the rule? I'm confused... How exact are your rules? How do you know when to break them?
The rules that you chose have to provide you with some sort of advantage. Then you have to determine under what conditions does this advantage hold up and under what conditions does this advantage fall apart.
You did "back testing" and found the set ups for entering and exiting trades. You come up with the set of rules that woulda/shoulda/coulda profitable. That is why you have rules. Rules are suppose to keep you unemotional and disciplined when you trade. If you have a set of rules for a trending market, you will NOT trade in a non-trending market. Period. If you have a set of rules for a non-trending market, you will NOT trade in a non-trending market. Period. If the rules says: you go long if the 20 days MA cross the 50 days MA, you will go long when the 20 day MA cross the 50 days MA. If they don't cross. You don't go long. Got it? But, the moon, mercury and the sun is in alignment... NO, the two MA don't cross, you don't go long. But, we got blue moon, the tide and and wind is just right... NO, the two MA don't cross, you don't go long. If the rule says: you must stop at red lights. You WILL stop at red lights. You can stop at green lights, but you WILL stop at red lights. The rule keeps you alive.
Rules, are needed in order not to create chaos. The chaos with people(killing, stealing, etc.), and in markets. One person stay with same type of strategy because he know it works. He follow the rules of his methology because he know that has worked before. For example, you want to kill a person. But, you know if you get caught you will go to jail for 25+ year. For markets, it is not so drastic. If you do no follow your rules and do the contrary, you will lose money. Unless, you are lucky. Point being is, rules are essential for survival, but they constanly have to evolve just like anything else in this universe.
Because there are thousands and thousands of ways to trade, rules provide you a way to trade that works for you. They give you a map, it's your job to follow the map. Trading 'rules' are like life - most people like knowing that Mon-Fri they get up at 7am, work from 9am-5pm, and off to bed at 11pm. These are their 'rules'. Human beings by nature, like structure. People may bitch and moan about having to work 40 hours a week for someone else, yet when you ask then why do it, they usually respond b/c I have to... It's in my 'rules'. So, humans needs rules. Traders should have rules. Without rules to help provide you a map in this difficult business, your chance of success is small in my opinion. Now, since you create your own rules, only you will know if they are GOOD rules.
I do not have anything to add... I agree with everything here. I am honored to be among the greatest traders .... seriously... now make some money... michael B. P.S. By the way....the thread author has a good point. changing market....For a crude example some "operational trading rules" aside from "general rules" can be based on ATR...
The reasons to have rule is to let us know when we are breaking the rules and deviate from the strategies due to brain-lock (tilt). So we know which way to steer back.
Below I parsed your OP. "Markets change all the time" This is the fundamental key for making money but it is not a rule. It is a principle. Several things follow from this principle; think of them as rules. 1. You have to be in the market to make money. So, what is the limit of this rule? Be in the market all of the time. Can you do that? Sure. But you have to know what else, concurrently, must be taking place. It is: 2. Always stay on the right side of the market. Can you do that? Sure. But you have to know what else, concurrently, must be taking place. It is: 3. Always reverse at the end of each price movement. Can you do that? Sure. But you have to know what else, concurrently, must be taking place. that turns out to be the whole story for your first sentence. "and no rules work all the time." The above rules work all of the time So what is on the table now. This is a decision point. You have already hosen to believe that "no rues wor all of the time". I do have any of these rules you are talking about available to me since I do not use any other rules to speak of. Here is something you may want to consider. Include the above three rules in what you are doing and will do and it will be okay. "Why have "exact rules" at all?" There are only one kind of "exact rules" We have them to operate at optimum. If you have exact rules then as you trade you do everything at the right ........TIME. Therefore, the rules you have that make things exact are all timing rules. All other rules are not timing rules. Above you see one timing rule (3). and you see two rues that have nothing to do with timing (1 and 2). "Isn't it all about buying pullbacks in uptrend or shorting rallies in downtrend (for trend following strategies for example)? Or "buying pullback" is the rule?" No "I'm confused..." You are right on the mark with this comment It cannot be any other way for you at this time. You are very normal and correct that this is the time to acknowledge confusion. "How exact are your rules?" Very, for timing. and "complete" for the rest of it. The two requirements for trading are completeness and timing exactness. This means that to trade and be better and better, we are involved in becoming effective and efficient and this is an optimizing process. A trader is looking at a market that gives him real time data. He sits and extracts the money that is flowing in the markets. Flow means going from one place to another. It goes into his account by extraction whereby he occasionally locks in accumulated profits. To use your words......as the uptrend continues youaccumulate the profits of the uptrend, as it ends you take those profits. Then as the pullback begins you ride along accumulating or profits, then you take those profits at the end of the pullback. As the market resumes the uptrend, you again accumulate profits. When the resumption comes to an end, you take profits, etc.... "How do you know when to break them?" You never break them People who break proper rules are not effective and efficient traders. They are doing what is called making mistakes. End of parsing. If you are reading this far, then you are ready for what is missing in your OP. A person finds principles and then sees the rules that come rom principles. This is where all people who trade begin if they are going anywhere. People who are not going to be traders for very long, do things in other ways. If you find the principals and if you see the related rules, then you are ready to begin the process of learnng to beome a trader. Big decision. There are potential traders who follow a path of least resistance. They invent stuff instead of looking for principles and rules that operate within those principles. Attached is a list of 80 such edges that have been invented. Above, you mentioned two of them. How does a trader work during RMH to make money? All traders do the same thing basically. Monitor>>>analyze>>> make decisions>>> and ACT. Your OP does not deal with any of this and that is the gap or missing link and t is what causes confusion. going backwards. Traders do five thingsto ACT: HOLD, REVERSE, WAIT, enter and exit. HOLDing is the part where you, in the market, keep accumulating profits. This is clear to anyone. This is what is done all day long. REVERSING is done between HOLDs. This is the process of staying onthe right side of te market. you change sides as the right side of the market changes. This is clear to anyone. WAITing is done when the price in the market is not moving. You can't make money when the market is not moving so you WAIT on the sidelines. This is clear to everyone. ENTERNG is done as the day begins (RMH) to enable you to begin to make money. This is a difficult concept. You have to get in the market to make money in the market. There is no swimming in lakes that is done standing on the shore. EXITing is done when the market stops moving or when the end of RMH occurs. All of these things are done as ACTs based on decisions. there are,therefore, only five decisions to be made. thecorrect one is done frequently during the day. This means that you have to participate all of the time and you mak a decision right after you have completed each analysis that you do during each part of the day. ANALYSIS is a thinking process that involves drawing a conclusion. The drawn conclusion is always linked to one of five decisions. These are all known to traders. A "these" is the pair, conclusion and decision. as aperson reaches a conclusion, immediately the correct decision also appears ....quickly. It is a deja vu sort of thing since it is happening all the time over and over. All the conclusions are on a list and listed in alphabetical order for traders. I should attach it for you. This is probably what is missing for a lot of traders who are still trying to get started. It is mentioned, indirectly, by some as "it will take you a few years, etc....profitable" There are only a finite number of conclusions on the list. Many are used in multiple places. That is, one conclusion applies to lots of different analysis. Conclusions are answers to analysis. The input for analysis is the data set from monitoring. Monitoring is a thing where data elements are assembled into a dataset. Take most traders.....they get one element of data and "react" to it. They see and ACT. They go away after a while because they have no more money to trade with. Oh worse still are the traders who not ever get to see the markets. they do not see the markets bcause they have nothing to look at that is related to how markets operate. This is the land of tough situation (TS). tThey have gone about choosing to not see the markets. So most traders do not collect data sets. You must have a complete data set each time you collct and each time it has the same number of elements. From this, you know clearly that there are a finite number of combinations and permutations of data sets. Another thing is that they go through well known sequences. MONITOR>>>>ANALYZE>>>DECIDE>>>>ACT. You have to learn to do these four things and do them correctly. If you decide to collect data then you can make a list of the possible sets. for each set you can list the rght conclusion. For each conclusion you can assign a decision from one of the five possible. Each of the decisions automatically dictates an ACT. So for stocks we use one of three mechanical versions of this post. For commodities, we are building up coding on all of the parts of this too. waht is confusing you is that you do not monitor and collect data sets nor do you have the assiciated conclusions that, in turn lead to decisions to ACT. The looking part is rule 1 and 2 and the ACT part is rule 3. The rules do not change. the data sets are all there. the conclusions do not chang and they are al there. The decisions are consistant and do not change relative to conclusions. The ACTions are effective, efficient and optimize making money during every minute of RMH.